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Wednesday, March 7, 2018

SPX Update: The Perfect Storm?

Monday's preferred market path (as shown in blue on the 15-minute chart) expected that the market would open lower, but reverse that opening to run up toward SPX 2720-30 before reversing lower again. The first two projected moves were a hit (although SPX ran a hair higher than 2730), and given the "surprise" announcement of Cohn's resignation and the subsequent futures reaction, it appears the third stage of that prediction may come to pass as well, though there are two routes the market can take to get there.

The main question now will be an option that I raised on our forums on Monday, and that's for a more complex "double retrace" correction prior to the next leg down. That option is shown in black on the chart below:

On the one hand, I like the idea of the market trapping bulls near yesterday's high before embarking on a more serious decline, but on the other, I'm never a fan of "bad news" market tops and vastly prefer significant tops to occur on "no news" or good news. Consequently, I'm only slightly favoring the blue path over the black path.

But I am still slightly favoring the blue path, because between Trump's tariffs (which seem likely to drag on the economy, IMO, and will certainly suck liquidity out of it either way) and Powell's brazen unwillingness to intervene and backstop this market (which, while potentially painful, will be exactly what the market needs -- a move away from the interventionist policies of the past 10 years and the current bubble), it seems as if the market is facing a possible "Perfect Storm." Interesting that the charts saw this potential storm brewing back in January. As I've said for many years: The charts LEAD the news.

In conclusion, barring the possible "double retrace" rally noted on the first chart, there's no material change from the prior update. Trade safe.

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